Dave Lewis, Tesco’s chief executive, speaks after the company announced its worst ever results

Tesco has crashed to the biggest loss ever recorded on the UK high street, slumping £6.4bn into the red as a result of huge writedowns on the value of its property portfolio and stock.

Dave Lewis, the chief executive parachuted in to mastermind a turnaround last year, described the loss as a “big significant number”. But the former Unilever executive insisted the supermarket was on the road to recovery after a tough 2014 in which it suffered a £263m accounting scandal and the exit of the former chief executive, Philip Clarke, following slumping sales and profits.

“This patient is okay … Our job is to allow it to be healthier. There is nothing critical about its finances,” he said.

The £416m cost of those redundancies contributed to a towering £7bn of one-off costs, including £4.7bn relating to revaluation of properties because of poorer trading and lower profits..

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After years of growth in the UK, Tesco suffered five profit warnings last year as analysts said it had opened too many large stores, let prices rise and shop floor standards slip. All supermarkets are under pressure as shoppers switch to the internet, small local shops and discounters such as Aldi and Lidl, but Tesco has been hardest hit as a result of its scale. Lewis, who has never run a retailer before, was brought in to provide a fresh approach.

Soon after his arrival, Lewis uncovered the accounting scandal caused by overoptimistic recording of payments made to Tesco by suppliers. The scandal has led to several executive departures and investigations by the Serious Fraud Office, the accountancy watchdog and the supermarket regulator. On Wednesday, Tesco said it had found about £60m more in mis-statements from previous years, mostly as a result of an audit of its Irish operations.

Lewis said that Tesco had sought to “draw a line under the past” with the massive writedowns and was beginning to see “early encouraging signs” of an upturn. In the three months to 28 February the volume of items sold in Tesco stores increased for the first time in four years.

“The most important vital sign is that more people are coming in and there are more transactions. That’s pretty good but it’s just the start. There is so much more to do,” Lewis said.

He added customers were returning because Tesco has cut prices, is simplifying its ranges and improving service in stores. While management roles have gone, Lewis has put an additional 4,652 staff on to the shop floor to ensure shelves are well stocked and customers served better.

City analysts welcomed the signs of green shoots. Bruno Monteyne, of Bernstein Research, said: “Dave Lewis has made the right initial steps on the long journey to potentially stabilising the company, and we believe Tesco has a fighting chance of regaining some of its former glories: a fantastic operator chasing cash returns to investors rather than global domination.”

But the annual financial results made clear the scale of the challenge for Lewis. Group sales fell 3% and trading profit, which excludes the impact of one-off costs, dived by 58% to £1.4bn. Trade at established UK stores improved in recent months, but sales still slid 1% in the final quarter compared to 3.6% for the year as a whole.

The problems were not just confined to the ailing UK business. Sales and profits dived in Asia and central Europe as Tesco, like many of its rivals, also faces competition from Aldi and Lidl in other markets. It has also run into local political and regulatory issues. Tesco also revealed it would have to pay £270m a year into its pension fund to help tackle a £3.9bn deficit. The company did not rule out an additional one-off payment if necessary.

Tesco shares fell nearly 5% to 223p, making it the biggest faller in the FTSE 100, as Lewis admitted that the results could get worse still before they get better. Equalling last year’s £1.4bn operating profit level was only an “aspiration”, he said. Hitting that target would be tough because Tesco was likely to have to slash prices further in the UK while legislation changes in Hungary had effectively wiped out profits in one of its biggest European markets.

Analysts said Tesco had invested about £200m into cutting prices and improving service in the past year. Lewis said he was ready to go further to ensure Tesco remained competitive. “If we need to invest more in order to continue the momentum we will,” he said. But he added: “It won’t be a big bang, it will be about constantly improving what we do.”

In the UK, only the Tesco Express convenience stores achieved sales growth at established stores. The grocer’s Extra hypermarkets, superstores and smaller city centre Metro outlets all experienced a decline in sales amid a dramatic switch in consumer shopping habits.

But Lewis insisted that the days of massive supermarkets were not numbered. He said that Tesco’s largest outlets had improved trading year-on-year at a much faster rate than its other stores. “Maybe they aren’t dinosaurs,” he said. “People talk about the trend to convenience and link that to convenience stores … actually the most convenient thing for a person to do is go to one place and buy everything they want.”

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While at least one analyst has suggested that Tesco should close as many as 200 more stores on top of the 43 it shuttered earlier this month, Lewis said he believed he could turn around performance by improving prices, choice and service.

He said Tesco could and should be able to rebuild its profit margins in the UK to “above average industry margins” – somewhere between 4% and 5% – from almost zero last year.

Lewis admitted he could not say how long the rebuild would take and that performance in the year ahead could be volatile and bumpy.

“It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years,” he said.

“The market is still challenging and we are not expecting any letup in the months ahead. When you add to this the fundamental changes we are making to our business and our offer, it is likely to lead to an increased level of volatility in short-term performance.”

There was some disappointment in the City as Tesco failed to provide further news on the sale of assets or a potential rights issue in order to reduce its debts. Lewis played down the need for urgent action or a fire sale, even though ratings agencies reduced the company to “junk” status. Lewis would only say that progress on the divestment of the Dunnhumby data analytics firm behind Tesco’s loyalty card scheme was progressing to plan.